Business confidence may have improved, but industry is still downbeat and conditions aren’t getting any better, the latest results of the NAB Monthly Business Survey have revealed.
The result doesn’t take into account the latest decision by the Reserve Bank to cut the official interest rate – analysts suggest it will take several weeks for the effects to flow through into sensitive industries such as property.
However, the weak result from the survey suggests another rate cut may very well be on the cards.
Confidence has risen three points but is still at zero, suggesting businesses aren’t feeling positive. And conditions are falling to “well below long-run average levels”.
“This appears to be related to the impact of the high Australian dollar, tighter fiscal policy and weaker commodity prices on the back of global economic uncertainties,” NAB economist Alex Knight said in a statement.
Trading conditions, profitability and employment conditions have fallen among most industries, with wholesale, retail, and transport and utilities feeling the most pain. However, conditions in the construction market have improved.
Forward orders fell heavily in September, while capital expenditure and credit demand both declined.
“Overall, the survey implies that underlying demand and Gross Domestic Product growth will be around 2.75- 3% in Q3 2012 – slightly below trend.”
GDP forecasts have been reduced slightly to 3.3% in 2012, from 3.4%, and 2.5% in 2013, down from 2.8%. The 2014 forecast has also been reduced from 3.6% to 3.2%.
The decline in business conditions was mostly led by falls in wholesale, retail and transport, although it’s not all bad news. Conditions have improved in construction, along with recreation and personal services. Mining conditions were unchanged in September, following a sharp decline in August.
And given the slowdown in mining, the gap between mining and non-mining states has shortened.
“It appears increasingly unlikely that conditions in the mining states will achieve levels recorded in the lead up to the global financial crisis. As we saw during the global financial crisis, mining states were hit harder than non-mining states, meaning these states may be more vulnerable to weakening commodity prices in the current period.”
And although separate reports indicate businesses are gearing up for Christmas, NAB says forward indicators aren’t so good.
The forward orders index deteriorated in September from five to -7 points – the weakest reading since May 2009.
“Particularly large falls in orders were reported in manufacturing – where the impact the high Australian dollar continues to erode competitiveness – and in construction, mining and wholesale. “
Capacity utilisation was unchanged, although it’s moving down in trend terms, while capital expenditure also fell by two points.
Labour costs growth fell in September, while inflation fell to its lowest since January.
Profitability declined in retail, down 21 points, while it also fell in transport, utilities and mining. But it made a surprising uptick in construction.